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NZ dollar weakens ahead of Europe's do-or-die summit

Friday 9th December 2011

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The New Zealand dollar fell as European leaders gather in Brussels for what is seen as a make-or-break summit to reach agreement over the region’s debt crisis.

The New Zealand dollar fell to 77.22 US cents from 77.99 late yesterday. The trade-weighted index slipped to 68.54 from 68.95.

European leaders are attending a two-day EU summit where they will be asked to approve a plan to further integrate their economies and implement tough fiscal spending controls to address the region’s elevated public debt.

“The bottom line is they need to do more,” said Alex Sinton, senior dealer at ANZ New Zealand. “These things will take years to solve and the market will continue to be disappointed until it sees results,” he said.

A Reuters poll of economists found that while 33 out of 57 believe the euro zone will probably survive in its current form but 38 of those questioned expect this week's summit will fail to deliver a decisive solution to the debt crisis.

Equities markets fell in Europe and the US in the lead up to the summit, the Standard & Poor's 500 Index shed 1.6 percent and the Nasdaq Composite Index lost 1.4 percent. In Europe, the Stoxx 600 Index fell 1.5 percent.

Investors had hoped for more in the lead up to the summit as the European Central Bank cut its key interest rate to 1 percent from 1.25 percent, offered financing to banks and eased rules on the collateral it requires from banks to tap its funds, according to Reuters.

In New Zealand, Reserve Bank governor Alan Bollard announced yesterday he would keep the official cash rate on hold at a record low 2.5 percent. Bollard flagged a gradual track of higher interest rates from the middle of next year.

Statistics New Zealand is due to release electronic card transactions for November today, providing another clue to the pace of consumer spending in the run-up to Christmas.

The kiwi fell to 57.93 euro cents from 58.20 yesterday and was at 59.98 yen from 60.56 yen. It dropped to 75.9 Australian cents from 76.01 and traded at 49.42 British pence from 49.64.

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